Cost and profit efficiency of listed South African banks pre and post the financial crisis

Abstract

The 2008 financial crisis and the regulations that followed after the crisis have seen an increase in the safeguards to the financial system, adding additional costs to the banking sector. This has significantly impacted on the banking industry. This study investigates the change in cost and profit efficiency in the period before, during and after the financial crisis (2004–2013) in South Africa for banks listed on the Johannesburg Stock Exchange (JSE). It further seeks to explain the relationship between the cost to income ratio (CIR) and the return on average assets (ROAA), as well as in relation to business cycles. The study further seeks to understand how ownership relates to market share, CIR and ROA.

The results indicate that there has been no significant statistical significant change in CIR in the period before, during and after the financial crisis. A different result is observed for profit efficiency as measured by ROAA as a significant statistical change is observed over the three periods. Furthermore, it was found that CIR is a better determiner of company performance as measured by total assets. It was also established that a strong relationship existed between ROAA and business cycles rather than CIR and business cycles. The ownership structure was found not to have a significant relationship with the bank’s performance.